China owns about $1 trillion in U.S. securities, including about $540 billion in U.S. Treasuries.

Still, Wang underscored that key the factor in U.S. interest rates remains the U.S. economy, and related fiscal policies. "The U.S. budget deficit will increase in the short-term, due to the bank rescue packages and the U.S.'s own fiscal stimulus, so the key remains the U.S.'s ability to decrease its budget deficit as the U.S. economy recovers from its recession."

China's decision to spend more than a half trillion dollars in fiscal stimulus stems from a pronounced slowdown in the emerging market giant's GDP, due to the U.S. and global economic slowdowns. Once an economy that Chinese officials had trouble slowing to below 10% growth, the economy may now slow to 5-6% growth in 2009, "which would be like traveling at 20 miles per hour after traveling at 60 miles per hour, which is too slow," Wang said.

Fiscal Policy & Economic Analysis: A major policy error by the United States throughout this decade -- going to war without a tax increase to pay for the increase defense spending -- has left the U.S. with a series of unpleasant fiscal choices. Large deficits exist even before the U.S. increases fiscal stimulus to jump-start its economy -- a reality that will put upward pressure on interest rates, regardless of China's investment stance. That means the U.S. will have to raise taxes to prevent interest rates from rising, but it can't raise taxes too soon, or it will hurt the economic recovery. Bottom line: no tax increase in 2008, but a tax increase in 2009 on upper-income-groups, if the U.S. economy is recovering.